Strategies for Business Owners, Employees, and Young Adults
Building wealth is not one-size-fits-all. The most effective—and most tax efficient—strategy depends on who you are and where you are on your financial journey. Whether you are running a business, established in your career, or just starting out, the right tools can help your money grow while minimizing tax.
Below is a straightforward guide to help you understand the best options to build wealth for your stage of life and work.
Business Owners
Business owners have the widest range of tax efficient wealth building opportunities. This is because they control how and when they earn income, they can structure their financial lives in ways employees cannot.
Reinvesting in the Business
- Reinvesting profits into the business may accelerate business growth.
- Increased profits can allow owners to pay themselves more tax efficient dividend income instead of salary.
- Over time, this can build meaningful retained earnings and create long-term wealth.
Corporate Investments & Holding Companies
- Excess business profits can be held inside a holding company for investment purposes.
- These investment dollars have only paid one layer of tax (corporate tax) which leaves the corporation with more dollars to invest from the start.
- A holding company can also help with long term planning, asset protection, and income smoothing.
Individual Pension Plan (IPP)
An IPP is a powerful retirement tool for incorporated business owners and professionals.
- Contributions use corporate dollars and are tax deductible to the corporation.
- This allows for larger annual contributions than an RRSP (actuarially determined).
- Investments grow tax sheltered.
- An IPP provides a guaranteed lifetime pension at retirement.
IPPs are best suited for business owners who:
- Are 40+ years old.
- Earn consistent T4 income.
- Have stable corporate cash flow.
- Have already maximized personal RRSP contributions.
Individual RRSPs
- Individual RRSPs remain a strong option, especially in years where a salary is paid to the business owner instead of dividend income.
- RRSP contributions reduce personal taxable income and can help maximize tax efficiency.
Established Employees (Mid‑Career & Mature Adults)
Individuals who are established in their careers often earn higher income and want to grow wealth without compromising lifestyle.
RRSPs
RRSPs provide strong tax benefits, either through:
- Immediate tax relief (if contributing directly through payroll), or
- A refund or reduction of tax payable upon filing annual taxes.
By reducing the overall tax payable each year using RRSP contributions, individuals and families can build long-term wealth to use in their retirement years.
Pension Plans
- Some employers offer Defined Benefit or Defined Contribution plans.
- Employee contributions to a pension are tax deductible and reduce income tax payable.
- Pensions can be taken as a predictable retirement income stream or in some cases, as a lump sum creating valuable long‑term wealth.
Young Adults (Generally Under 30)
Early career individuals often earn lower incomes, so choosing the right investment account matters—especially when balancing taxes, flexibility, and future goals.
Tax‑Free Savings Account (TFSA)
- Ideal when income is under $30,000.
- Contributions do not create a tax deduction, but all future growth is tax‑free.
- TFSAs are a great tool to develop healthy savings habits for young adults.
First Home Savings Account (FHSA)
- FHSAs are perfect for individuals planning to buy a home.
- Contributions give an RRSP-like tax deduction which reduces personal income taxes.
- Withdrawals from a FHSA for a first home purchase are tax free (similar to a TFSA).
- If homeownership is not a goal, this account may not be the best tool to achieve the young adult’s goals.
RRSPs
- Making an RRSP contribution depends on the annual income of the young adult while understanding their goals.
- <$30,000 annual income – not ideal as it only creates a small tax deduction.
- $30,000 – $60,000 annual income – the tax benefit is moderate
- >$60,000 annual income – the tax benefit is meaningful
- Young adults can carry forward unused RRSP room until their income is higher.
Summary
In summary, building wealth requires a partnership with a trusted investment advisor and team to consider the many investment tools available to you while also navigating the tax implications. By building wealth over time and minimizing taxes, we work together to ensure that you reach your personal goals.
